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Why Is Cadence (CDNS) Down 0.6% Since Last Earnings Report?
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It has been about a month since the last earnings report for Cadence Design Systems (CDNS - Free Report) . Shares have lost about 0.6% in that time frame, underperforming the S&P 500.
Will the recent negative trend continue leading up to its next earnings release, or is Cadence due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.
Cadence Q2 Earnings Top Estimates
Cadence reported second-quarter 2024 non-GAAP earnings per share (EPS) of $1.28, which beat the Zacks Consensus Estimate by 4.1%. The bottom-line number improved 4.9% year over year and exceeded the management’s guided range of $1.20-$1.24.
Revenues of $1.061 billion topped the Zacks Consensus Estimate by 1.2% and increased 8.6% on a year-over-year basis. It surpassed the management’s guided range of $1.03-$1.05 billion.
The top line was driven by broad-based customer demand. CDNS ended the quarter with a backlog of $6 billion and current remaining performance obligations of $3.1 billion.
The company highlighted that the design activity continued to be robust owing to transformative generational trends such as hyperscale computing, 5G and autonomous driving, bolstered by the proliferation of AI. Its solutions are also witnessing rapid uptake as system companies endeavor to build its silicon amid increasing chip complexity.
Customers have been significantly increasing their R&D budgets in AI-driven automation. This bodes well for the Cadence.AI portfolio. CDNS remains focused on embedding cutting-edge AI capabilities across its SDA, EDA and digital biology offerings. Expanding collaborations along with solid demand for new hardware systems are other tailwinds.
As a result, management upgraded the revenue guidance for 2024. However, it narrowed guided ranges for earnings per share, operating margin and cash flow for 2024.
Revenues for 2024 are now projected to be in the range of $4.6-$4.66 billion compared with the previous guidance of $4.56-$4.62 billion. It includes $40 million in revenues (at the midpoint) from the acquisition of BETA CAE completed in June 2024.
Non-GAAP EPS for 2024 is expected to be between $5.77 and $5.97 compared with the previous guidance of $5.88 and $5.98.
However, the non-GAAP operating margin for 2024 is now forecasted to be in the range of 41.7% to 43.3% compared with 42-43% guided earlier.
Also, operating cash flow is now expected to be between $1 billion and $1.2 billion. Earlier, operating cash flow was projected to be between $1.35 billion and $1.45 billion. Cadence expects to utilize 50% of the free cash flow to repurchase its shares in 2024.
For the third quarter of 2024, revenues are estimated to be in the $1.165-$1.195 billion band. The company reported sales of $1.023 billion in the year-ago quarter.
Non-GAAP EPS for the third quarter is anticipated to be between $1.39 and $1.49. CDNS reported an EPS of $1.26 in the year-ago quarter.
Non-GAAP operating margin is estimated to be between 40.7% and 42.3% for the third quarter.
Quarterly Performance
Product & Maintenance revenues (90.6% of total revenues) of $961 million rose 4.1% year over year. Services revenues (9.4%) of $100 million increased 85.2% year over year. Our estimate for revenues from the Product & Maintenance and Service segments was $969.5 million and $74.9 million, respectively.
Geographically, the Americas, China, Other Asia, Europe, the Middle East and Africa, and Japan contributed 49%, 12%, 19%, 14% and 6%, respectively, to total revenues in the reported quarter.
Product-wise, Custom IC Design & Simulation, Digital IC Design & Signoff, Functional Verification, Intellectual Property and Systems Design & Analysis accounted for 21%, 27%, 25%, 13% and 14% of total revenues, respectively.
The System Design & Analysis business benefited from AI-driven design optimization platforms and higher demand for its 3D-IC platform, with revenues from this segment increasing 20% year over year.
The Digital IC business benefited from the rapid adoption of digital full flow solutions. CDNS’ digital solutions were adopted by 40 additional customers in the past year.
The Custom IC business benefited owing to the rapid adoption of the Virtuoso Studio solution.
The IP business benefited owing to increasing AI use cases especially, HPC and heterogeneous integration, with revenues from the segment up 25% year over year. CDNS recently unveiled Cadence Janus Network-on-Chip (NoC) to boost electronic system connectivity.
Janus NoC is designed to manage simultaneous high-speed communications within and between silicon components with minimal latency. This allows customers to achieve their power, performance and area (PPA) targets faster with relatively lower risk.
Total non-GAAP costs and expenses increased 11.6% year over year to $635 million.
Non-GAAP gross margin contracted 290 basis points (bps) to 88.5%. Non-GAAP operating margin contracted 170 bps on a year-over-year basis to 40.1%.
Balance Sheet & Cash Flow
As of Jun 30, 2024, CDNS had cash and cash equivalents of $1.059 billion compared with $1.012 billion as of Mar 31.
Long-term debt was $998.9 million as of Jun 30, 2024, compared with $299.8 million as of Mar 31.
Cadence generated an operating cash flow of 156 million in the reported quarter compared with the prior quarter’s $253 million. Free cash flow was $127 million compared with $204 million in the previous quarter.
The company repurchased its shares worth $125 million in the second quarter.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in fresh estimates.
The consensus estimate has shifted -14.07% due to these changes.
VGM Scores
Currently, Cadence has a subpar Growth Score of D, though it is lagging a bit on the Momentum Score front with an F. Following the exact same course, the stock was allocated a grade of F on the value side, putting it in the bottom 20% quintile for this investment strategy.
Overall, the stock has an aggregate VGM Score of F. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Cadence has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
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Why Is Cadence (CDNS) Down 0.6% Since Last Earnings Report?
It has been about a month since the last earnings report for Cadence Design Systems (CDNS - Free Report) . Shares have lost about 0.6% in that time frame, underperforming the S&P 500.
Will the recent negative trend continue leading up to its next earnings release, or is Cadence due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.
Cadence Q2 Earnings Top Estimates
Cadence reported second-quarter 2024 non-GAAP earnings per share (EPS) of $1.28, which beat the Zacks Consensus Estimate by 4.1%. The bottom-line number improved 4.9% year over year and exceeded the management’s guided range of $1.20-$1.24.
Revenues of $1.061 billion topped the Zacks Consensus Estimate by 1.2% and increased 8.6% on a year-over-year basis. It surpassed the management’s guided range of $1.03-$1.05 billion.
The top line was driven by broad-based customer demand. CDNS ended the quarter with a backlog of $6 billion and current remaining performance obligations of $3.1 billion.
The company highlighted that the design activity continued to be robust owing to transformative generational trends such as hyperscale computing, 5G and autonomous driving, bolstered by the proliferation of AI. Its solutions are also witnessing rapid uptake as system companies endeavor to build its silicon amid increasing chip complexity.
Customers have been significantly increasing their R&D budgets in AI-driven automation. This bodes well for the Cadence.AI portfolio. CDNS remains focused on embedding cutting-edge AI capabilities across its SDA, EDA and digital biology offerings. Expanding collaborations along with solid demand for new hardware systems are other tailwinds.
As a result, management upgraded the revenue guidance for 2024. However, it narrowed guided ranges for earnings per share, operating margin and cash flow for 2024.
Revenues for 2024 are now projected to be in the range of $4.6-$4.66 billion compared with the previous guidance of $4.56-$4.62 billion. It includes $40 million in revenues (at the midpoint) from the acquisition of BETA CAE completed in June 2024.
Non-GAAP EPS for 2024 is expected to be between $5.77 and $5.97 compared with the previous guidance of $5.88 and $5.98.
However, the non-GAAP operating margin for 2024 is now forecasted to be in the range of 41.7% to 43.3% compared with 42-43% guided earlier.
Also, operating cash flow is now expected to be between $1 billion and $1.2 billion. Earlier, operating cash flow was projected to be between $1.35 billion and $1.45 billion. Cadence expects to utilize 50% of the free cash flow to repurchase its shares in 2024.
For the third quarter of 2024, revenues are estimated to be in the $1.165-$1.195 billion band. The company reported sales of $1.023 billion in the year-ago quarter.
Non-GAAP EPS for the third quarter is anticipated to be between $1.39 and $1.49. CDNS reported an EPS of $1.26 in the year-ago quarter.
Non-GAAP operating margin is estimated to be between 40.7% and 42.3% for the third quarter.
Quarterly Performance
Product & Maintenance revenues (90.6% of total revenues) of $961 million rose 4.1% year over year. Services revenues (9.4%) of $100 million increased 85.2% year over year. Our estimate for revenues from the Product & Maintenance and Service segments was $969.5 million and $74.9 million, respectively.
Geographically, the Americas, China, Other Asia, Europe, the Middle East and Africa, and Japan contributed 49%, 12%, 19%, 14% and 6%, respectively, to total revenues in the reported quarter.
Product-wise, Custom IC Design & Simulation, Digital IC Design & Signoff, Functional Verification, Intellectual Property and Systems Design & Analysis accounted for 21%, 27%, 25%, 13% and 14% of total revenues, respectively.
The System Design & Analysis business benefited from AI-driven design optimization platforms and higher demand for its 3D-IC platform, with revenues from this segment increasing 20% year over year.
The Digital IC business benefited from the rapid adoption of digital full flow solutions. CDNS’ digital solutions were adopted by 40 additional customers in the past year.
The Custom IC business benefited owing to the rapid adoption of the Virtuoso Studio solution.
The IP business benefited owing to increasing AI use cases especially, HPC and heterogeneous integration, with revenues from the segment up 25% year over year. CDNS recently unveiled Cadence Janus Network-on-Chip (NoC) to boost electronic system connectivity.
Janus NoC is designed to manage simultaneous high-speed communications within and between silicon components with minimal latency. This allows customers to achieve their power, performance and area (PPA) targets faster with relatively lower risk.
Total non-GAAP costs and expenses increased 11.6% year over year to $635 million.
Non-GAAP gross margin contracted 290 basis points (bps) to 88.5%. Non-GAAP operating margin contracted 170 bps on a year-over-year basis to 40.1%.
Balance Sheet & Cash Flow
As of Jun 30, 2024, CDNS had cash and cash equivalents of $1.059 billion compared with $1.012 billion as of Mar 31.
Long-term debt was $998.9 million as of Jun 30, 2024, compared with $299.8 million as of Mar 31.
Cadence generated an operating cash flow of 156 million in the reported quarter compared with the prior quarter’s $253 million. Free cash flow was $127 million compared with $204 million in the previous quarter.
The company repurchased its shares worth $125 million in the second quarter.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in fresh estimates.
The consensus estimate has shifted -14.07% due to these changes.
VGM Scores
Currently, Cadence has a subpar Growth Score of D, though it is lagging a bit on the Momentum Score front with an F. Following the exact same course, the stock was allocated a grade of F on the value side, putting it in the bottom 20% quintile for this investment strategy.
Overall, the stock has an aggregate VGM Score of F. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Cadence has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.